July 29, 2009

After Three Wins Against SEC, Eugene Scalia Sides With the Commission

To the commissioners of the Securities and Exchange Commission, Gibson, Dunn
& Crutcher's Eugene Scalia has become a familiar and frustrating presence.
During the past five years, Scalia has won three of the five U.S. Court of
Appeals for the D.C. Circuit cases challenging rule changes by the SEC.

But Scalia’s latest case at the D.C. Circuit involving the SEC puts him on the
opposite side, aligning him with the commission as an intervenor in defending a
new SEC rule.

The case, Securities Industry and Financial Markets Association v. Securities
and Exchange Commission, centers upon a proposed rule change that NYSE Arca, a
subsidiary of NYSE Euronext, obtained from the SEC that deals with fees on a
market data product. Scalia is representing the Nasdaq Stock Market, which
filed for leave to intervene in March because the rule would also affect
similar products produced by his client.

NYSE Arca is being represented by New York’s Alexandra
Shapiro of Macht, Shapiro, Arato & Isserles and Douglan Henkin and David Cohen of Milbank, Tweed, Hadley & McCloy.

Carter Phillips, Dennis
Hensley, and Kevin Campion, all partners at Sidley Austin, are representing
SIFMA. Phillips and Campion could not be reached for comment. Hensley declined to
comment on the case.

Briefs are due later this year.

Scalia, a former Labor Department solicitor, said the rule at issue in this case differs from those he has challenged
in the past because the commission properly evaluated the consequences it would
have on the marketplace. “The NYSE Arca order that is at issue represents the
thorough economic analysis that has been lacking in some of the SEC’s more
controversial rule analysis.”

Scalia pointed to his most recent win in the D.C. Circuit as an example of an
SEC rule that didn’t pass muster. Last week, Chief Judge David Sentelle wrote
in that the SEC's analysis of Rule 151A, which would impose
federal securities regulation on fixed indexed annuities, was "arbitrary
and capricious." In a unanimous vote, the circuit ordered the commission
to reconsider the new rule. Scalia has also won two victories on behalf of the
U.S. Chamber of Commerce on a rule that required mutual funds to have boards
with no less than 75 percent independent directors.

Scalia said that under the SEC’s new chairwoman, Mary Shapiro, he expects the
commission to focus on getting "back to basics," such as enforcement, rather than trying to pursue new "envelope-pushing" rules. “That said, the Commission remains
under pressure from labor unions and others to stretch its regulatory reach.
The current proposed rule to enable large shareholders to use the
company's proxy to put forward alternate candidates for the board of directors
is one example,” Scalia said.

But in the NYSE Arca case, Scalia said, the SEC has done its homework, and he
is looking forward to helping defend a rule that he said is properly
constructed.